Channels, Spring 2018

Page 38 Schwartz • Public Principles and Economic Legacy Stiglitz also discusses the Ricardian Equivalence arguments made by Robert J. Barro, rejecting them without incorporating Buchanan’s critiques. As Stiglitz notes, The evidence does not support Barro’s theoretical contention. …Statistical evidence from a variety of countries confirms the experience in the United States that private savings does not fully offset government borrowing. This is not surprising: individuals are not as rational as Barro assumes (fully taking into account public liabilities in current decision making), nor as altruistic (setting aside an additional dollar of bequests for their heirs every time public indebtedness increases by a dollar). 134 This refutation of Barro is certainly legitimate, but it does not reflect the influence of Buchanan, whose arguments, as noted above, often attempted to refute Barro’s model on theoretical grounds. Stiglitz simply does not go that far. Finally, Stiglitz critiques the idea of a balanced budget amendment, which Buchanan promoted. The former argues that a balanced budget amendment would “take away one of the main tools of economic stabilization. It would make it more difficult to maintain the economy at full employment, putting almost all the responsibility on monetary policy.” 135 Thus, Stiglitz leaves aside the constitutional economics that Buchanan emphasized, which is only natural for a member of a different economic school. Overall, then, Buchanan’s basic argument about the burden of public debt is presented directly, but the assumptions behind it and the corresponding commitments are not maintained. This suggests that Buchanan’s fundamental contributions to public debt theory are recognized, if perhaps overlooked by more technical articles, even though his overall approach remains one of many in the field of public finance. There are some articles in the recent literature that are more favorable to Buchanan’s view of public debt. One example is “Living on Borrowed Time: The Trouble with Public Debt.” Dr. Vito Tanzi argues that, in the past, debt would have been considered legitimate under certain extreme circumstances, but that recent economics has lost sight of the fact that some public debt is not productive. On Tanzi’s view, debt is acceptable when, “(a) fighting legitimate wars; (b) dealing with the consequences of great natural disasters; and, in recent times, (c) public borrowing during severe recessions” but it is not “a miracle cure.” 136 Further, significant, ongoing public debt is susceptible to corruption, as Tanzi gives Greece, Brazil, and Italy as examples. 137 Also, Tanzi does not see public finance theory as neutral. Neo-Keynesianism is harmful in that it creates arguments for debt spending in recession that are overwrought, promising 134 Ibid, 872. 135 Ibid, 875. 136 Vito Tanzi, “Living on Borrowed Time: The Trouble with Public Debt,” Policy , Vol. 33, No. 1 (Autumn 2017, 3. 137 Ibid, 3